Too Many Wrong Mistakes: What Lawyers Can Learn from the "Dodgers Divorce"

May 29, 2012

Marriage, money, and baseball have long proved to be strange bedfellows. Adding a postnuptial agreement to the mix makes a real recipe for disaster. The well-publicized California case of McCourt v. McCourt is dramatic proof that, to quote Yogi Berra (Baseball Hall of Fame 1973), it is possible to make "too many wrong mistakes."

"If you build it, he will come."

-The Voice, Field of Dreams (1989)

In 1979, Baltimore native Jamie Luskin (daughter of former appliance store owner and self-proclaimed "Cheapest Guy in Town" Jack Luskin) married Boston native Frank McCourt. They lived in Boston and raised their four sons. Jamie, having a law degree from University of Maryland, and business degree from M.I.T, worked as real estate and (ironically) family law attorney, and Frank started his own commercial real-estate business, The McCourt Company. Jamie later joined The McCourt Company as her husband’s general counsel.

The McCourts’ major projects included development of mixed-use waterfront property in South Boston and converting a defunct Penn Central railroad property into parking lots. The McCourts used their good fortune to purchase several homes throughout the country—including a $16 million dollar mansion in Brookline, Massachusetts, a $19.5 million dollar estate on Cape Cod and a $6 million dollar ski home in Vail. But, after a business creditor placed a lien on the McCourts’ Brookline home, they agreed to shelter their non-business assets by putting their homes into Jamie’s name only.

Having amassed great wealth, the McCourts wanted to realize their dream of owning a sports team. Baseball was in Frank’s blood, as his grandfather was part-owner of the Boston Braves. After several failed attempts to purchase a baseball franchise (specifically, the Boston Red Sox, the Anaheim Angels and the Tampa Bay Devil Rays), in 2004, the McCourts purchased the Los Angeles Dodgers from Rupert Murdoch’s News Corp. for $421 million. The franchise included the team, Dodger Stadium and 276 acres of land surrounding the stadium. Frank signed $119 million in personal guarantees to purchase the team and financed $125 million using a commercial property owed by The McCourt Company in Boston. Again, to protect their personal assets from business creditors, the Dodgers franchise was purchased in Frank’s name and the properties remained in Jamie’s name. Jamie was hired as the team’s CEO.

"I guess some mistakes you never stop paying for."

-Roy Hobbs (played by Robert Redford), The Natural (1984)

After the franchise was purchased, and before Frank and Jamie relocated from Boston to Los Angeles, they consulted with their joint estate planning attorney, Larry Silverstein, of Bingham McCutchen LLP in Boston. What followed can only be described as, to paraphrase what Branch Rickey once said about Leo "The Lip" Durocher (Baseball Hall of Fame 1967 and 1994, respectively), taking a bad situation and making it immediately worse.

The problem here was that Silverstein was not a family law attorney, nor was he admitted to practice law in the State of California. Rather, he proclaimed to have "sufficient" understanding of California law. Nevertheless, with the assistance of an estate attorney at his firm’s California office, Silverstein prepared a post-nuptial agreement and presented it to the parties for signature. There was no disclosure as to the values of the parties’ assets, nor did he ever ask the parties if they wished to alter their respective rights of equitable distribution under Massachusetts law by entering into the agreement. Eventually, Silverstein witnessed the parties as they executed three originals in Boston before they moved. Then, to be, in his own words, "super cautious," he had the parties execute three more originals right after they settled into their home in California. So, at this point, there were six original signed versions of what was believed to be the same document.

"Every 24 hours the world turns over on someone who was sitting on top of it."

-George Lee "Sparky" Anderson, Baseball Hall of Fame 2000

The McCourts spent the next few years on a financial rollercoaster. They spent lavishly to maintain their powerful image, and carried a hefty payroll for the Dodgers. Their combined salaries were $7 million dollars, and they reportedly took $108 million dollars in personal distributions from the team in a period of 5 years, tax free. They were able to avoid paying taxes on the distributions because the team was operating at a loss. But, the spending took a toll, and mounting debt and rumors of Jamie’s infidelity put a strain on their high-profile marriage.

On October 14, 2009, the parties announced that after 30 years of marriage they were separating. They assured the public that Jamie would stay on as the Dodgers’ CEO and turned the focus away from their divorce and onto the Dodgers’ playoff run. But on October 22, 2009, one day after the Dodgers were eliminated from the playoffs, Jamie was fired as CEO.

Less than one week after her firing, Jamie filed for divorce, requesting that she be awarded half of the team, which she valued at an estimated $800 million dollars, and half of the couple’s other assets, which she believed to be worth at least $1.2 billion dollars. She also requested spousal support to cover her expenses, including multiple mortgages, a private jet, a full-time hair and makeup person, and a half-dozen country club memberships. Frank claimed he had little wealth due to the personal and professional debts he carried. The parties also disagreed over ownership of the team—Frank said that the postnup made the Dodgers his sole property, while Jamie insisted she was an equal owner. While Jamie prepared to litigate the validity of the postnup, a judge awarded her $225,000 per month in temporary spousal support and $412,159 per month to pay the mortgages on the properties and all costs associated with seven homes.

Even though he was saddled with a significant temporary alimony payment, Frank continued to make low-ball settlement offers to Jamie. Confident that the Court would find him to be the sole owner of the franchise, Frank reportedly offered to settle the divorce with Jamie by giving her all of parties’ properties, in addition to a cash payment between $35 and $40 million. Jamie turned down his settlement offer, claiming the postnup was invalid because she never intended to give up her right to half ownership of the Dodgers.

"Been in this game one hundred years, but I see new ways to lose 'em I never knew existed before."

-Casey "The Old Perfessor" Stengel, Baseball Hall of Fame 1966

The first part of the divorce trial in August 2010 focused on the validity of the postnuptial agreement. Exhibit A, the last page of the postnup, listed all of the parties’ assets (although without their value) and how they were to be divided in the event of a divorce. All six originals of the postnup had Frank as the sole owner of the Dodgers. Jamie’s only defense was that she did not understand that she was giving up her right to the franchise when she signed the postnup—a tough argument to swallow considering her education and experience with complex agreements and business dealings. It appeared as if Jamie was going to lose her pursuit of the team.

But, once Jamie’s forensic experts examined the six originals, they made a surprising discovery. In all six originals of the postnup, the parties’ signature page immediately proceeded Exhibit A. So, when the parties signed the postnup, there should have been indentations on Exhibit A from those signatures. The experts determined that the Boston copies had indentations on Exhibit A, but the California copies did not.

Silverstein was called to testify about this inconsistency and Jamie’s luck turned. Silverstein explained that after the California originals were signed, he noticed a small, but crucial, typo, in each of the California exhibits. Specifically, the three Boston exhibits stated that Frank was the sole owner of all property "including" the Dodgers franchise. But, the three California exhibits substituted the word "including" with "excluding." Therefore, of the six originals, three had Frank owning the franchise solely and the other three had Frank owing the franchise equally with Jamie.

After he discovered this mistake, Silverstein chose not to mention it to the McCourts. Instead, Silverstein, believing he had his clients’ "implicit permission" to act in such a manner, simply printed out three more copies of the Boston exhibit and swapped them with the incorrect California exhibits, bringing all six agreements into accord.

If you get three strikes, even the best lawyer in the world can’t get you off."

-William "Sport Shirt Bill" Veeck, Jr., Baseball Hall of Fame 1991

In a 100-page opinion, Superior Court Judge Scott Gordon explained that the testimony in this matter "paints a picture of two people who had no involvement in the drafting or execution of the [agreement] and related documents and further that they so entrusted all maters regarding the [agreement] to their lawyers, that they did not closely read or did not read at all, the drafts or final copies of the various [agreements] in this case. This testimony…does not reconcile with the sophisticated business people who testified at the trial and who were well versed on all of the details of the issues and their very complex business affairs." The Court repeatedly commented that neither Frank or Jamie were credible witnesses in that regard. The Court also found that Silverstein’s actions, although "troubling" and without any "reasonable explanation," were not enough to invalidate the agreement in and of itself, because Silverstein acted without the parties’ specific permission and after they already signed the agreement.

Nevertheless, because two materially different versions of the executed agreement existed, and neither side presented sufficient evidence indicating which of the two versions represented the parties’ true intent, there was no mutual assent or meeting of the minds when they executed the agreement. The postnuptial agreement was, therefore, invalid, and Jamie and Frank were equal owners of the Dodgers franchise under California’s community property laws.

"Most games are lost, not won."

-Casey Stengel (again)

In June 2011, the Dodgers filed for bankruptcy protection just days before the team was expected to miss its payroll. Frank had tried to broker a deal with Fox Television which would have advanced him $385 million, but MLB Commission Bud Selig refused to approve the terms fearing that Frank would use about half of the money to settle his divorce.

After months of high-stakes negotiations, in October 2011, the McCourts settled, with Jamie relinquishing her one-half interest in the Dodgers in exchange for Frank paying her a reported $130 million dollars. It is estimated that Frank and Jamie had the most expensive divorce in California history, collectively spending $20 million in legal fees. In other news, taking a cue from Yogi Berra who said: "I never said most of the things I said," Silverstein’s firm filed a preemptive suit against Frank McCourt, seeking a declaratory judgment that it is not liable for malpractice. That suit was dismissed for misuse of the state’s Declaratory Judgment Act. A malpractice suit against Silverstein’s firm appears imminent.

Finally, on March 27, 2012, Frank McCourt and the Dodgers officially announced an agreement under which the Guggenheim Baseball Management LLC (a partnership of several investors, including basketball legend Earvin "Magic" Johnson) will purchase the organization for the record price of $2 billion. Another group of affiliates, including Frank McCourt, will also purchase the property surrounding the stadium for an additional $150 million dollars. This historic deal will allow the Dodgers to reorganize and emerge from Chapter 11 and pay all of their creditors in full.

"It’s what you learn after you know it all that counts."

-Earl Weaver, Former Orioles Manager and Baseball Hall of Fame 1996

The lesson from the McCourts’ divorce is that all attorneys who draft agreements—postnuptial or otherwise—need to carefully protect themselves and their clients. One small mistake can be extremely costly, as Frank McCourt and his lawyer have learned the hard way.

There are several things lawyers can do to avoid the pitfalls.

1. Keep close watch on your drafts.

This lesson has nothing to do with your fantasy baseball draft. Rather, it is very typical for agreements to go through several drafts before the final version is reached. Be sure to carefully label each draft, by version number and date. Make changes very clear, by using highlighting tools, Redline or good old fashioned handwriting. Do not make a change and expect the other side to find it by combing through the agreement line by line.

2. Review the agreement with a "fresh set of eyes."

After proofreading the same document many times, you can still miss a glaring error. It may help to step away from the document and come back to it on another date and time with "fresh eyes." Try reading the sections from back to front or have someone else in the office proofread for you. That new perspective may make all the difference in the world.

3. Have the client review the agreement one more time in your presence.

The law presumes that every person is capable of making a valid deed or contract. Rule 1.4 of the Maryland Rules of Professional Conduct requires attorneys to adequately communicate information to our clients and explain the material risks and alternatives so that the client can give his or her informed consent. It is helpful that these conversations take place in a face-to-face setting and be documented in the case file. Meet with the client and go through the final version of the agreement one more time. Ask them if they have any questions and make certain that you answer them. Essentially, voir dire your client in your office before he or she signs it. Keep in mind that a factor in the Court’s decision to invalidate the agreement was that both Frank and Jamie McCourt testified that they did not read the incorrect documents closely enough to ever detect the errors.

4. Have only one fully executed original agreement, with each page initialed.

Unless there is a rule regarding the number of original agreements, it may be safest for there only to be one. Photocopies of it can still have the same force and effect as the original. Each page (including exhibits) should be numbered and initialed by both parties.

5. Always include a severability clause in your agreements.

The provisions in an agreement can be severable from one another so that if one is deemed invalid, then the other provisions remain in full force and effect. In the McCourts’ case, the agreement contained such a clause, but the Court could not sever the contradicting exhibits without any evidence of what the parties’ true intentions were when they executed the agreement.

6. Admit when you made a mistake, or refrain from making it altogether.

To quote Tim Robbins’ character, Ebby Calvin ("Nuke") LaLoosh, from the famous baseball movie Bull Durham: "A good friend of mine used to say, 'This is a very simple game. You throw the ball, you catch the ball, you hit the ball. Sometimes you win, sometimes you lose, sometimes it rains.’ Think about that for a while."

The standard in practicing law, as well as in baseball, is not perfection. As members of the tribunal, we have an ethical responsibility to be candid in our representation. It is so basic but also bears repeating. Rather than trying to fix your mistake in an unethical manner, admit to it and try to make it right. Sometimes you’ll win and sometimes you’ll lose. And, if you are not familiar with an area of law, do not be afraid to turn down a case. As practitioners learn the hard way, sometimes the best cases are the ones that you do not take. I wonder if Larry Silverstein is thinking the same thing.

For more information regarding postnuptial agreements, or any other issue involving family law, contact Ferrier Stillman.